ITEM7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this Annual Report. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and related financing strategy, includes forward-looking statements that involve risks and uncertainties. You should read Part 1, Item 1A, Risk Factors of this Form10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Objective

The purpose of the Management Discussion and Analysis (the “MD&A”) is to present information that management believes is relevant to an assessment and understanding of our results of operations and cash flows for the year ended June 30, 2024, and our financial condition as of June 30, 2024. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and notes thereto.

Overview

We are a pharmaceutical company focused on commercializing novel therapeutics. In fiscal 2024 and fiscal 2023, we operated two business segments: (i) the Rx Segment, consisting of prescription pharmaceutical products sold primarily through third party wholesalers and (ii) the Consumer Health Segment, which consists of various consumer health products sold directly to consumers. We use third parties to manufacture all of our products.

We have incurred significant losses in each year since inception. Our net losses were $15.8 million and $17.1 million for the years ended June 30, 2024, and 2023, respectively. As of June 30, 2024, and 2023, we had an accumulated deficit of $320.0 million and $304.1 million, respectively. We expect to continue to incur significant expenses in connection with our ongoing activities, including the integration of our acquisitions and the commercialization of our product pipeline.

In light of our own business activities and external developments in the biotechnology and biopharmaceutical industries, Aytu management and our Board regularly reviews our performance, prospects and risks such as the potential impact to our business resulting from the Company’s competitive landscape (i.e., entry of generic competitors, payer pressures, new branded entrants, etc.). These reviews have included consideration of potential partnerships, collaborations, and other strategic transactions such as acquisitions or divestitures of programs or technology to enhance stockholder value. Aytu’s management and Board continues to evaluate potential strategic transactions and business combinations.

Significant Developments

Business Environment

We have continued to experience inflationary pressure and have experienced supply chain disruptions related to the sourcing of raw materials, energy, logistics and labor during fiscal 2024. While we do not have sales or operations in Russia or Ukraine and we do not have material sales or operations in the Middle East, it is possible that the conflict or actions taken in response, could adversely affect some of our markets and suppliers, economic and financial markets, costs and availability of energy and materials, or cause further supply chain disruptions. We expect that inflationary pressures and supply chain disruptions could continue to be significant across the business throughout fiscal 2025. The Company has not experienced stock outages for its ADHD products since the launch of those products, and the pediatric product supply has remained adequate to satisfy demand for the preceding three years.

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Rx Segment

During the fourth quarter of fiscal 2024, we successfully completed the transition of all manufacturing of our ADHD products to a United States-based third-party manufacturer to improve the profitability of these products.

As part of our realization of post-acquisition synergies and product prioritization, we have implemented a portfolio rationalization plan whereby we discontinued or divested five non-core products in our Rx Segment: Cefaclor Oral Suspension, Flexichamber, Tussionex, Tuzistra XR, and ZolpiMist. These products, collectively, contributed $0.1 million and $1.6 million in net revenue during the years ended June 30, 2024, and 2023, respectively.

In July 2023, we entered into an exclusive collaboration, distribution and supply agreement with Medomie Pharma Ltd (“Medomie”), a privately owned pharmaceutical company, for Medomie to sell Adzenys and Cotempla in Israel and the Palestinian Authority. We will supply Adzenys and Cotempla to Medomie, who will be responsible for seeking local regulatory approvals and marketing authorizations for each product. This agreement represents Aytu’s first international commercial agreement for Adzenys and Cotempla.

Consumer Health Segment

As previously announced, in fiscal 2024 we began the wind down of the Consumer Health Segment in order to maximize profitability. During the first quarter of fiscal 2025, we completed the wind down of operations and entered into and entered into a definitive agreement to effect the Consumer Health Divestiture. The divested business encompasses the established e-commerce platform, certain inventory and associated consumer brands, intellectual property, contracts and liabilities, and provides for us to receive revenue-based royalty payments on future sales of former Consumer Health Segment products. We expect the savings realized from the strategic shift away from the Consumer Health business, coupled with incremental margin improvements expected from the previously announced closure of our Grand Prairie, Texas manufacturing site, to significantly enhance our operating results and drive stockholder value.

Debt and Equity Financings

Eclipse Agreement

In June 2024, we and certain of our subsidiaries entered into the Eclipse Amendment No. 5, with the Eclipse Lender. Under the Eclipse Agreement No. 5, we have two loan agreements, the Eclipse Term Loan and the Eclipse Revolving Loan.

The Eclipse Term Loan consists of a principal amount of $13.0 million, at an interest rate of SOFR plus 7.0%, with a four-year term and a straight-line loan amortization period of seven years, which would provide for a loan balance at the end of the four-year term of $5.6 million to be repaid on June 12, 2028, the maturity date. We used the proceeds of the Eclipse Term Loan and a portion of the proceeds from warrant exercises described below to repay in full a $15.0 million term note.

The Eclipse Revolving Loan allows us to borrow up to $14.5 million at an interest rate of SOFR plus 4.5%. In addition, we are required to pay an unused line fee of 0.5% of the average unused portion of the maximum Eclipse Revolving Loan amount during the immediately preceding month. The ability to make borrowings and obtain advances of the Eclipse Revolving Loan remains subject to a borrowing base and reserve, and availability blockage requirements and the maturity date, as amended, is June 12, 2028.

Equity Financings

In June 2023, we raised gross proceeds of $4.0 million from the issuance of (i) 1,743,695 shares of our common stock, and (ii) in lieu of common stock to certain investors that so chose, pre-funded warrants to purchase 430,217 shares of common stock (the “June 2023 Pre-Funded Warrants”) and (iii), accompanying Tranche A warrants to purchase 2,173,912 shares of common stock at an exercise price of $1.59 (the “Tranche A Warrants”), (iv) and accompanying Tranche B warrants to purchase 2,173,912 shares of common stock at an exercise price of $1.59 (the “Tranche B Warrants”). We received $3.4 million in proceeds net of underwriting fees and other expenses.

In June 2024, the Tranche B Warrants were exercised, generating proceeds of $3.5 million. The Tranche B Warrants were converted into 367,478 shares of common stock and 1,806,434 “pre-funded” warrants to purchase shares of common stock with an exercise price of $0.0001 per share (the “Tranche B Pre-Funded Warrants”). We used a portion of these proceeds as part of the $15.0 million term loan repayment described above.

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Results of Operations

Comparison of the Years Ended June 30, 2024, and 2023

Year Ended

(in thousands)

Operating expenses:

Gain from contingent consideration — (969 ) 969

Derivative warrant liabilities (loss) gain (4,004 ) 4,793 (8,797 )

Loss on extinguishment of debt (594 ) — (594 )

Revenue by Segment

Year Ended

(in thousands)

During the year ended June 30, 2024, net revenue decreased by $26.4 million, or 25% compared to the year ended June 30, 2023. The decrease in our Consumer Health Segment was a result of our decision to wind down this business, which we completed in the first quarter of fiscal 2025. We incurred a $18.1 million decrease in net revenue from our Pediatric Portfolio, which was primarily driven by payer changes that negatively affected prescription coverage, and a $1.4 million decrease that resulted from the discontinuation of certain products. These declines were partially offset by an increase in net revenue from the ADHD Portfolio of $10.9 million, driven by a consistent and reliable supply of our ADHD Portfolio products and strong commercial execution. During fiscal 2025 we anticipate minimal net revenue from the Consumer Health Segment due to its wind down and divestiture during the first quarter of fiscal 2025, and an increase in net revenue from our Rx Segment due to continued commercial execution.

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Gross Margin

Year Ended

Rx Segment gross margin 75 % 71 %

Consumer Health Segment gross margin 35 % 43 %

Consolidated gross margin 67 % 62 %

During the year ended June 30, 2024, gross profit decreased by 19% compared to the year ended June 30, 2023. Gross margin increased to 67% for the year ended June 30, 2024, compared to 62% for the year ended June 30, 2023. The improvement was primarily due to a decline in the lower-margin Consumer Health Segment net revenue from the wind down of our Consumer Health Segment and improvements in the higher gross margin ADHD Portfolio, which were primarily due to efficiencies in production related to higher demand for Adzenys and Cotempla. We expect gross margin to continue to increase in fiscal 2025 due to the completed wind down and divestiture of the Consumer Health Segment and due to reduced costs associated with the successful transition of our ADHD product manufacturing to a United States-based CMO.

Advertising and Direct Marketing

During the year ended June 30, 2024, advertising and direct marketing expenses decreased by $12.3 million, or 72%, compared to the year ended June 30, 2023. Advertising and direct marketing expense include direct-to-consumer marketing, advertising, sales, and customer support and processing fees related to our Consumer Health Segment. The reduction in advertising and direct marketing costs were primarily due to our wind down of the Consumer Health Segment during fiscal 2024. We expect advertising and direct marketing expense to decrease in fiscal 2025 primarily from the completed wind down and divestiture of the Consumer Health Segment.

Other Selling and Marketing

During the year ended June 30, 2024, other selling and marketing expense decreased by $2.1 million, or 9%, compared to the year ended June 30, 2023. The decreases were primarily driven by commission expense based on prescriptions generated by our sales force and commercial marketing program fees that decrease as product sales decreased. We expect other selling and marketing expense to increase during fiscal 2025 related to increased commission expense and commercial marketing program fees from anticipated increases in prescription product sales.

General and Administrative

During the year ended June 30, 2024, general and administrative expense decreased by $6.1 million or 21%, compared to the year ended June 30, 2023. The decrease was primarily a result of ongoing cost-cutting initiatives and operational improvements. We expect general and administrative expense to decrease during fiscal 2025 primarily from the completed wind down and divestiture of the Consumer Health Segment and due to reduced costs associated with the successful transition of our ADHD product manufacturing out of our Grand Prairie, Texas-based manufacturing facility to a United States-based CMO.

Research and Development

Year Ended

(in thousands)

Research and development:

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During the year ended June 30, 2024, research and development expense decreased by $1.3 million, or 32%, compared to the year ended June 30, 2023. Historically, our research and development costs were primarily associated with AR101 and to a lesser extent, the development of Healight and support for our commercialized products. In October 2022, we announced the suspension of the development of AR101 and Healight to focus on our commercial operations. As a result, research and development spending has significantly declined. Research and development spending on AR101 during fiscal 2024 relates to $0.5 million charge to wind down the clinical trial and the remaining relates to minimum expenses required for regulatory filings and maintenance of our AR101 intellectual property, and spending on ADHD relates to regulatory filings and maintenance of our intellectual property. We expect our research and development expenses to slightly decrease in the future as we continue to look for cost savings and focus on commercial operations.

Amortization of Intangible Assets

During the year ended June 30, 2024, amortization expense of intangible assets, excluding amounts included in cost of sales, were relatively consistent compared to the year ended June 30, 2023. We expect amortization of intangible assets expense to decrease during fiscal 2025 as a result of certain intangible assets that became fully amortized towards the end of fiscal 2024.

Restructuring Costs

During the year ended June 30, 2023, we recognized $2.4 million of restructuring costs, excluding $0.7 million of inventory write-down included in cost of sales, related to the wind down of our Consumer Health Segment and the closure of our Grand Prairie, Texas manufacturing site. We expect restructuring costs to decrease during fiscal 2025 as the majority of our restructuring activities were completed during fiscal 2024. See Note 17 – Restructuring Costs in the accompanying notes to the consolidated financial statements for further information.

Impairment Expense

During the year ended June 30, 2024, there was no impairment expense recorded except for impairment expense related to exit and disposal activities recorded to the restructuring costs financial statement line item discussed above and we do not anticipate impairment charges during fiscal 2025 at this time.

During the year ended June 30, 2023, we recognized total impairment expense of $5.7 million, consisting of (i) $5.6 million intangible assets, and (ii) $0.1 million other assets. The impairments were due to increased focus on our commercial efforts in the Rx Segment and discontinued product distributions in the Consumer Health Segment. See Note 7 – Intangible Assets in the accompanying notes to the consolidated financial statements for further information.

Gain from Contingent Consideration

We fair value our acquisition-related contingent considerations based on our projected results, any changes are reflected through income or expense. During the year ended June 30, 2024, there was no gain from contingent consideration, compared to $1.0 million for the year ended June 30, 2023. The decrease was primarily due to all contingent considerations (including CVRs) expiring or winding down during fiscal 2023. As a result, we do not expect any contingent consideration gain or loss in fiscal 2025.

Other Income, Net

During the year ended June 30, 2024, other income, net was relatively consistent compared to the year ended June 30, 2023. We expect other income, net to continue to be relatively consistent during fiscal 2025.

Interest Expense

During the year ended June 30, 2024, interest expense was relatively consistent with a decreased of $0.2 million, or 3%, compared to the year ended June 30, 2023. We expect interest expense to decrease during fiscal 2025 due to the extinguishment of our $15.0 million term loan while entering into the $13.0 million Eclipse Term Loan on more favorable terms.

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Derivative Warrant Liabilities (Loss) Gain

The fair value of derivative warrant liabilities is calculated using either the Black-Scholes option pricing model or the Monte Carlo simulation model are revalued at each reporting period and changes are reflected through income or expense. For the year ended June 30, 2024, we recognized an unrealized loss of $4.0 million from the fair value adjustment primarily driven by an increase in our stock price during fiscal 2024. For the year ended June 30, 2023, we recognized an unrealized gain of $4.8 million from the fair value adjustment primarily driven by a decrease in our stock price during fiscal 2023.

Income Tax Expense

For the year ended 2024, there was $1.8 million of income tax expense, which was an effective tax rate of negative 12.6%. This income tax expense was primarily driven by the limitations on losses as a result of Section 382 of the IRC changes in ownership coupled with existing valuation allowances. We expect that income tax expense will increase during fiscal 2025 due primarily to increased profitability.

For the year ended 2023, income tax expense was zero with an effective tax rate of zero percent and reflecting the full valuation allowance.

Liquidity and Capital Resources

Cash Flows

The following table sets forth the primary sources and uses of cash for the periods indicated:

Year Ended

(in thousands)

Net cash used in operating activities $ (1,388 ) $ (5,129 ) $ 3,741

Net cash used in provided by investing activities $ (329 ) $ (117 ) $ (212 )

Net Cash Used in Operating Activities

Net cash used in operating activities during these periods primarily reflected our net losses, partially offset by changes in working capital and non-cash charges including impairment, stock-based compensation expense, gain or loss on derivative warrant liabilities, depreciation, amortization and accretion, and other charges.

During the year ended June 30, 2024, net cash used in operating activities totaled $1.4 million. The use of cash was primarily the result of the decrease in accounts payable and accrued liabilities, partially offset by positive cash earnings (net loss offset by non-cash items primarily from depreciation, amortization and accretion, stock-based compensation expense, derivative warrant liabilities adjustment, inventory write-down, and other certain non-cash adjustments). Additionally, these were partially offset by funds from the Employee Retention Credit program recorded in other operating liabilities (see Note 9 – Other Liabilities) and a decrease in accounts receivable, net, inventories and a net decrease in various other operating assets and liabilities.

During the fiscal year ended June 30, 2023, net cash used in operating activities totaled $5.1 million. The decrease in net cash used was primarily the result of the decrease in operating loss, and increases in accounts payable and accrued liabilities, partially offset by an increase in accounts receivable, inventory, and prepaid expenses.

Net Cash Used in Investing Activities

Net cash used in investing activities is generally related to our merger and acquisitions as well as purchase of assets to support our operations and disposal of assets related to exit and disposal costs.

Net cash used in investing activities was $0.3 million during the year ended June 30, 2024, and net cash used in investing activities was $0.1 million during the year ended June 30, 2023, which was primarily used for the purchase of various property and equipment.

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Net Cash from Financing Activities

Net cash used in financing activities of $1.3 million during the year ended June 30, 2024, was primarily from $15.7 million of payments made related to the extinguishment of our term loan, $2.6 million for fixed payment arrangements and $0.3 million of payments for debt issuance costs. This financing cash used was partially offset by $13.0 million of proceeds from the Eclipse Term Loan, $3.5 million of net proceeds from the issuance of common stock and warrants and $0.9 million of proceeds from our Eclipse Revolving Loan.

Net cash provided by financing activities of $8.9 million during the year ended June 30, 2023, was primarily from $3.4 million of net proceeds from our securities purchase agreement in June 2023, $9.1 million of net proceeds from our August 2022 equity raise, and $2.9 million net proceeds from our sales under the ATM Sales Agreement; partially offset by $2.3 million of net payments made under our revolving credit facility, and fixed payment arrangements totaling $4.3 million.

Capital Resources

Sources of Liquidity

We have obligations related to our loan agreements and milestone payments for licensed products and manufacturing purchase commitments. We finance our operations through a combination of sales of our common stock and warrants, borrowings under our revolving credit facility and cash generated from operations.

Shelf Registrations

On September 28, 2021, we filed a shelf registration statement on Form S-3, which was declared effective by the SEC on October 7, 2021. This shelf registration statement covered the offering, issuance and sale by the Company of up to an aggregate of $100.0 million of its common stock, preferred stock, debt securities, warrants, rights and units (the “2021 Shelf”). As of June 30, 2024, $82.4 million remains available under the 2021 Shelf. This availability is subject to SEC 1.B.6 limitations of Form S-3. The 2021 Shelf expires on October 7, 2024. Given the upcoming expiration of the 2021 Shelf, concurrent with the filing of this Form 10-K we expect to file a new shelf registration statement to cover the offering, issuance and sale by the Company of up to an aggregate of $100.0 million of our common stock, preferred stock, debt securities, warrants, rights and units (the “2024 Shelf”).

On June 8, 2020, we filed a shelf registration statement on Form S-3, which was declared effective by the SEC on June 17, 2020. This shelf registration statement covered the offering, issuance, and sale by us of up to an aggregate of $100.0 million of our common stock, preferred stock, debt securities, warrants, rights and units (the “2020 Shelf”). In June 2020, under the 2020 Shelf, we initiated an at-the-market offering program (“ATM”), which allowed us to sell and issue shares of our common stock from time-to-time. On June 2, 2021, we terminated our “at-the-market” sales agreement with a sales agent, and on June 4, 2021, we entered into a Controlled Equity OfferingSM Sales Agreement (the “ATM Sales Agreement”) with a sales agent, pursuant to which we agreed to sell up to $30.0 million of our common stock from time to time in “at-the-market” offerings under the 2020 Shelf. During the year ended June 30, 2023, we issued 699,929 shares of common stock under the ATM Sales Agreement, with total net proceeds of $2.9 million. The 2020 Shelf expired in June 2023 and the ATM Agreement was terminated in July 2023.

Underwriting & Placement Agency Agreements

On June 8, 2023, we entered into a securities purchase agreement with certain institutional investors named therein and a placement agency agreement with Maxim Group LLC, pursuant to which the Company agreed in a best efforts offering to issue and sell to investors in the offering an aggregate of 1,743,695 shares of the Company’s common stock, pre-funded warrants in lieu of shares to purchase 430,217 shares of common stock at an exercise price of $0.0001, accompanying Tranche A warrants to purchase 2,173,912 shares of common stock at an exercise price of $1.59 (the “Tranche A Warrants”), and accompanying Tranche B warrants to purchase 2,173,912 shares of common stock at an exercise price of $1.59 (the “Tranche B Warrants”). The Tranche A Warrants and the Tranche B Warrants may be exercised for either shares of common stock or pre-funded warrants to purchase common stock at a future exercise price of $0.0001 per share in the same form as the pre-funded warrant. The gross proceeds were $4.0 million, and net proceeds were $3.4 million after deducting offering expenses. The offering closed on June 13, 2023. In June 2024, the Tranche B Warrants were exercised, generating proceeds of $3.5 million. The Tranche B Warrants were converted into 367,478 shares of common stock and 1,806,434 pre-funded warrants to purchase shares of common stock with an exercise price of $0.0001 per share (the “Tranche B Pre-Funded Warrants”). We used a portion of these proceeds as part of the $15.0 million term loan repayment that occurred in the fourth quarter of fiscal 2024.

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On August 11, 2022, we closed an underwritten public offering, pursuant to which we sold an aggregate of (i) 1,075,290 shares of our common stock, (ii), pre-funded warrants to purchase 87,500 shares of our common stock, and (ii) accompanying warrants to purchase 1,265,547 shares of our common stock. The shares of common stock (or pre-funded warrants) and the accompanying common warrants were issued separately but could only be purchased together. The combined public offering price for each share of common stock and accompanying common warrant was $8.60, and the combined offering price for each pre-funded warrant and accompanying common warrant is $8.58, which equals the public offering price per share of the common stock and accompanying common warrant, less the $0.001 per share exercise price of each pre-funded warrant. The pre-funded warrants were exercised in full in August 2022. The common warrants are exercisable at any time after the date of issuance for a period of five years from the date such common warrants are first exercisable. The number of shares of common stock issuable upon exercise of the common warrants is subject to adjustment in certain circumstances, including a stock split of, stock dividend on, or a subdivision, combination or recapitalization of the common stock. The Company received gross proceeds of $10.0 million and net proceeds were $9.1 million, after deducting underwriting discounts and commissions and estimated offering expenses.

Avenue Capital Agreement

On January 26, 2022, we entered into the Avenue Capital Agreement, pursuant to which the Company received $15.0 million term loan. In the fourth quarter of fiscal 2024, we repaid this term loan in full with proceeds from the Eclipse Term Loan and a portion of the proceeds from the exercise of the Tranche B Warrants.

Eclipse Agreement

Contractual Obligations, Commitments and Contingencies

As a result of our acquisitions and licensing agreements, we are contractually and contingently obliged to pay, when due, various fixed and contingent milestone payments. See Note 18 – Commitments and Contingencies in the accompanying notes to the consolidated financial statements for further information.

In May 2022, we entered into an agreement with Tris to terminate the License, Development, Manufacturing and Supply Agreement dated November 2, 2018, related to Tuzistra (the “Tuzistra License Agreement”). Pursuant to such termination, as of June 30, 2024, we have accrued a settlement liability of $6.2 million payable to Tris, with a provision that allows us to pay interest on any principal amounts due but remaining unpaid past July 2024.

Upon closing of the acquisition of a line of prescription pediatric products from Cerecor, Inc. in October 2019, we assumed payment obligations that require us to make fixed and product milestone payments. As of June 30, 2024, up to $2.1 million of fixed and product milestone payments remain to be paid through 2026 and are expected to be paid from the revenue generated by Karbinal.

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In connection with our acquisition of the assets from Rumpus VEDS, LLC, Rumpus Therapeutics, LLC, Rumpus Vascular, LLC (collectively, “Rumpus”), and only if we resume and ultimately complete clinical development of AR101 and gain regulatory clearances to commercialize the product in multiple markets around the world, we may be required to pay up to $67.5 million in regulatory and commercial-based earn-out payments to Rumpus, which are primarily paid against commercial milestone achievements. Under the licensing agreement with Denovo Biopharma LLC (“Denovo”), we made a payment of $0.6 million for a license fee in April 2022. In addition, upon the achievement of regulatory and commercial milestones, we may be required to pay up to $101.7 million. Under the licensing agreement with Johns Hopkins University (“JHU”), upon achievement of regulatory and commercial milestone, we may be required to pay up to $1.6 million to JHU. In fiscal 2022, two milestones payable to Rumpus were achieved totaling $4.0 million, which were paid in 109,447 shares of common stock and $2.6 million in cash. The Company also assumed the responsibility for royalties of 3.0% of net revenue from the product, with a minimum of $20,000 per year, and upon the achievement of certain regulatory and commercial milestones, up to $1.6 million. With clinical development currently suspended, only if and when we resume and ultimately complete clinical development of AR101, are substantially all milestones payable to these parties.

Critical Accounting Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of any contingent assets and liabilities at the date of the financial statements, as well as reported revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Part II, Item 8, Note 2 – Summary of Significant Accounting Policies in this Annual Report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements and notes thereto.

Revenue Recognition

We generate revenue from product sales through our Rx Segment and Consumer Health Segment. We evaluate our contracts with customers to determine revenue recognition using the following five-step model: (1) identify the contract with the customer; (2) identify the performance obligations and if they are distinct; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) a performance obligation is satisfied.

Net product sales in the Rx Segment consist of sales of prescription pharmaceutical products under the Rx Portfolio, principally to a limited number of wholesale distributors and pharmacies in the United States. Rx product revenue is recognized at the point in time that control of the product transfers to the customer in accordance with shipping terms (i.e., upon delivery), which is generally “free-on-board” destination when shipped domestically within the United States and “free-on-board” shipping point when shipped internationally consistent with the contractual terms.

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We make estimates of the net sales price, including estimates of variable consideration to be incurred on the respective product sales (known as “Gross to Net” adjustments). Significant judgement is required in estimating Gross to Net adjustments considering legal interpretations of applicable laws and regulations, historical experience, payer channel mix, current contract prices under applicable programs, unbilled claims, processing time lags and inventory levels in the distribution channel.

The Gross to Net adjustments includes:

Savings offers, rebates and wholesaler chargebacks reflect the terms of underlying agreements, which may vary. Accordingly, actual amounts will depend on the mix of sales by product and contracting entity. Future returns may not follow historical trends. Our periodic adjustments of our estimates are subject to time delays between the initial product sale and ultimate reporting and settlement of deductions. We continually monitor these provisions and do not believe variances between actual and estimated amounts have been material.

A 10% increase or decrease in these estimates impacts net revenue by a corresponding increase or decrease of approximately $2.9 million. The estimates related to returns and savings offers have the most significant impact on our Gross to Net adjustment calculation.

We generate Consumer Health Segment product revenue from sales of various consumer health products through e-commerce platforms and direct mail. Revenue is generally recognized “free-on-board” shipping point, as those are the agreed-upon contractual terms. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by us from a customer are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sale. We completed the wind down of the Consumer Health Segment and entered into a definitive agreement to effect the Consumer Health Divestiture in the first quarter of fiscal 2025.

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Impairment of Long-lived Assets

We assess impairment of long-lived assets annually and when events or changes in circumstances indicates that their carrying value amount may not be recoverable. Long-lived assets consist of property and equipment, net and other intangible assets, net. Circumstances which could trigger a review include but are not limited to: (i) significant decreases in the market price of the asset; (ii) significant adverse changes in the business climate or legal or regulatory factors; (iii) changes in business plans or (iv) expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. If the estimated future undiscounted cash flows, excluding interest charges, from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value. Such estimates involve projections of future sales and costs, which may vary from actual results. Declines in the outlook for the related products, particularly soon after fair-value measurement upon acquisition or prior impairment, can negatively impact our ability to recover the carrying value and can result in an impairment charge.

Our strategy is to continue building our portfolio of revenue-generating products by leveraging our commercial team’s expertise to build leading brands within large therapeutic markets. As a result of focusing on building the portfolio of revenue-generating prescription products, we decided to abandon active development of our NT0502 (N-desethyloxybutynin), a new chemical entity that is being developed for the treatment of sialorrhea, which is excessive salivation or drooling. During the year ended June 30, 2023, we incurred an impairment charge of $2.6 million related to NT0502 and have terminated the licensing agreement. We also terminated the license agreement with Cedars-Sinai Medical Center surrounding the Healight technology platform as an additional result of terminating the development of the Healight program. Further, the acquired product distribution rights from Innovus was impaired by $3.0 million due to discontinuance of products in the Consumer Health Segment.

During the year ended June 30, 2024, related to our wind down of our Consumer Health Segment we recorded an inventory write-down of $0.7 million and restructuring costs totaling $0.2 million related primarily to severance costs and the abandonment of our leased warehouse facility, equipment and other assets. Also, during the year ended June 30, 2024, related to the closure of our Grand Prairie, Texas manufacturing facility we recorded restructuring costs totaling $2.2 million related to severance costs and the abandonment of our leased manufacturing facility, equipment and other assets. The inventory write-down was recorded in cost of sales and restructuring costs have been recorded in restructuring costs on the consolidated statements of operations.

Warrants

Equity classified warrants are valued using a Black-Scholes option pricing model at issuance and are not remeasured. Liability classified warrants are carried at fair value using either the Black-Scholes option pricing model or the Monte Carlo simulation model. Changes in the fair value of liability classified warrants in subsequent periods are recorded as a gain or loss on remeasurement and reported as a component of cash flows from operations.

ITEM7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, we are not required to provide information under this item.

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ITEM8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID 248) 64

Consolidated Balance Sheets 66

Consolidated Statements of Operations 67

Consolidated Statements of Stockholders’ Equity 68

Consolidated Statements of Cash Flows 69

Notes to the Consolidated Financial Statements 70

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Aytu BioPharma, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Aytu BioPharma, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of June 30, 2024, and 2023, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024, and 2023, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the United States federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

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Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Variable consideration related to certain gross to net adjustments

As described further in Note 2 to the financial statements, the Company estimates adjustments to the transaction price of certain product sales (“Gross to Net” adjustments). Certain Gross to Net adjustments involve the use of significant assumptions and judgments to develop the estimate. The most significant assumption used in the ADHD Portfolio savings offers Gross to Net adjustment is the inventory levels in the distribution channel as of the balance sheet date. We identified the ADHD Portfolio savings offerings Gross to Net adjustment as a critical audit matter.

The principal considerations for our determination that the ADHD Portfolio savings offerings Gross to Net adjustment is a critical audit matter are (a) the inherent limitations over management’s visibility and insight into the underlying details of the source data, which requires management to depend and rely on external data from multiple sources and (b) the extent to which the external data is used by management to develop the estimate of the ADHD Portfolio savings offerings Gross to Net adjustment.

Our audit procedures related to this critical audit matter included the following, among others:

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2022.

Denver, Colorado

September 26, 2024

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AYTU BIOPHARMA,INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

ASSETS

Current assets:

Prepaid expenses and other current assets 5,635 7,162

Non-current assets:

Property and equipment, net 693 1,815

Operating lease right-of-use assets 829 2,054

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current portion of debt 1,857 85

Non-current liabilities:

Other non-current liabilities 4,529 6,975

Commitments and contingencies (note 18)

Stockholders’ equity

Total liabilities and stockholders’ equity $ 118,095 $ 136,463

The accompanying notes to the consolidated financial statements are an integral part of this statement.

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AYTU BIOPHARMA,INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

Year Ended

Operating expenses:

Amortization of intangible assets 5,212 4,788

Restructuring costs 2,365 —

Impairment expense — 5,705

Gain from contingent consideration — (969 )

Derivative warrant liabilities (loss) gain (4,004 ) 4,793

Loss on extinguishment of debt (594 ) —

Income tax expense (1,768 ) —

Basic and diluted weighted-average common shares outstanding 5,537,957 3,339,906

Basic and diluted net loss per share $ (2.86 ) $ (5.11 )

The accompanying notes to the consolidated financial statements are an integral part of this statement.

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AYTU BIOPHARMA,INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

Additional Total

Common Stock Paid-in Accumulated Stockholders’

Shares Amount Capital Deficit Equity

Issuance of common stock from exercise of warrants 441,214 — 1,290 — 1,290

The accompanying notes to the consolidated financial statements are an integral part of this statement.

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AYTU BIOPHARMA,INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year Ended

Cash flows from operating activities:

Adjustments to reconcile net loss to cash used in operating activities:

Depreciation, amortization and accretion 8,272 8,815

Stock-based compensation expense 2,913 6,046

Derivative warrant liabilities loss (gain) 4,004 (4,793 )

Amortization of debt discount and issuance costs 597 559

Impairment expense — 5,705

Gain from contingent consideration — (969 )

Non-cash loss on extinguishment of debt 400 —

Other non-cash adjustments 660 7

Changes in operating assets and liabilities:

Prepaid expenses and other current assets 1,527 846

Other operating assets and liabilities, net 3,847 (1,872 )

Net cash used in operating activities (1,388 ) (5,129 )

Cash flows from investing activities:

Other investing activities (329 ) (117 )

Net cash used in investing activities (329 ) (117 )

Cash flows from financing activities:

Net proceeds from issuance of common stock and warrants 3,467 15,575

Payment made to fixed payment arrangement (2,566 ) (4,266 )

Net proceeds (payments) made on revolving credit facility 832 (2,250 )

Payments made to borrowings (15,722 ) (96 )

Proceeds from borrowings 13,000 —

Payment for debt issuance costs (273 ) (92 )

Net cash (used in) provided by financing activities (1,262 ) 8,871

Net change in cash and cash equivalents (2,979 ) 3,625

Cash and cash equivalents at beginning of period 22,985 19,360

Cash and cash equivalents at end of period $ 20,006 $ 22,985

Supplemental disclosure of cash flows information:

Cash paid for income taxes $ 1,608 $ —

Non-cash investing and financing activities:

Other non-cash investing and financing activities $ 787 $ 147

The accompanying notes to the consolidated financial statements are an integral part of this statement.

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AYTU BIOPHARMA,INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Nature of Business and Financial Condition

Aytu BioPharma, Inc. (“Aytu,” the “Company,” “we,” “us,” or “our”), is a pharmaceutical company focused on commercializing novel therapeutics. The Company was originally incorporated as Rosewind Corporation on August 9, 2002, in the state of Colorado and was re-incorporated as Aytu BioScience, Inc. in the state of Delaware on June 8, 2015. Following the acquisition of Neos Therapeutics, Inc. (“Neos”) in March 2021 (the “Neos Acquisition”), the Company changed its name to Aytu BioPharma, Inc.

The Company’s strategy is to become a leading pharmaceutical company that improves the lives of patients. The Company uses a focused approach of in-licensing, acquiring, developing, and commercializing novel prescription therapeutics in order to continue building its portfolio of revenue-generating products and leveraging its commercial team’s expertise to build leading brands within large therapeutic markets. The Company’s primary focus is on commercializing innovative prescription products that address conditions frequently developed or diagnosed in childhood, including attention deficit hyperactivity disorder (“ADHD”). The Company operates through two business segments: (i) the Rx segment, consisting of prescription pharmaceutical products sold primarily through third party wholesalers (the “Rx Segment”) and (ii) the consumer health segment, which consists of various consumer healthcare products sold directly to consumers through certain e-commerce platforms (the “Consumer Health Segment”).

The Rx Segment primarily consists of two product portfolios. The first consists of Adzenys XR-ODT (amphetamine) extended-release orally disintegrating tablets (“Adzenys”) and Cotempla XR-ODT (methylphenidate) extended-release orally disintegrating tablets (“Cotempla”) for the treatment of attention deficit hyperactivity disorder (“ADHD”) (the “ADHD Portfolio”). The second consists primarily of Karbinal® ER (carbinoxamine maleate extended-release oral suspension) (“Karbinal”), an extended-release first-generation antihistamine suspension containing carbinoxamine indicated to treat numerous allergic conditions, and Poly-Vi-Flor and Tri-Vi-Flor, two complementary prescription fluoride-based supplement product lines containing combinations of fluoride and vitamins in various formulations for infants and children with fluoride deficiency (the “Pediatric Portfolio”).

The Consumer Health Segment consisted of multiple consumer health products competing in large healthcare categories including allergy, hair regrowth, diabetes support, digestive health, sexual and urological health and general wellness, which was commercialized through direct mail and e-commerce marketing channels. The Company began to wind down the Consumer Health Segment in fiscal 2024. During the first quarter of fiscal 2025, the Company completed the wind down of operations and entered into a definitive agreement to divest the Consumer Health Segment to a private, e-commerce focused company (the “Consumer Health Divestiture”). The divested business encompasses the established e-commerce platform, certain inventory and associated consumer brands, intellectual property, contracts and liabilities, and provides for the Company to receive up to $0.5 million of revenue-based royalty payments and recovery of cost on certain future sales of former Consumer Health business products.

During the fourth quarter of fiscal 2024, the Company concluded that it had alleviated the Company’s previously disclosed substantial doubt about its ability to continue as a going concern. This was primarily the result of the extinguishment of its $15.0 million term loan that was due in January 2025, while entering into a new $13.0 million term loan on more favorable terms to the Company with a maturity date of June 2028. Further, the Company maintained and extended the maturity date of its revolving credit facility to June 2028 and had $5.6 million of remaining availability to draw upon as of June 30, 2024 (see Note 10 – Revolving Credit Facility and Note 11 – Long-Term Debt for further detail). In addition, during fiscal 2024 the Company received $3.5 million of net proceeds from the exercise of warrants, was in compliance with all of its debt covenants as of June 30, 2024, and through the filing of this Annual Report on Form 10-K for the year ended June 30, 2024 (“Form 10-K” or “Annual Report”). The Company has implemented and continues to implement plans to achieve operating profitability and increase cash flows, including various margin improvement initiatives, the wind down and divestiture of the Company’s unprofitable Consumer Health Segment, and the indefinite suspension of certain research and development activities. Considering these factors, management has concluded that as of the filing of this Form 10-K, substantial doubt about the Company’s ability to continue as a going concern did not exist.

The Company’s consolidated financial Statements and notes thereto have been prepared assuming that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements and notes thereto are available to be issued.

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Note 2 - Summary of Significant Accounting Policies

Principals of Consolidation

The Company’s consolidated financial statements and notes thereto include the accounts of: Aytu Therapeutics, LLC, Innovus Pharmaceuticals, Inc. and Neos Therapeutics, Inc. and their respective wholly owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

Basis of Presentation

The Company’s consolidated financial statements and notes thereto have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”)

Going Concern Determination

In connection with the preparation for each annual and interim financial reporting period, management evaluates whether there are events that, in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statements are available to be issued. The evaluation is based on relevant conditions and events that are known and reasonably knowable within one year after the date that the financial statements are available to be issued. Recurring operating losses or year over year negative cash flows from operating activities are considered negative trends. See Note 1 – Nature of Business and Financial Condition for further detail on the evaluation performed by the Company.

Use of Estimates

The preparation of financial statements and footnotes requires the use of management estimates, judgments and assumptions. Actual results may differ from estimates. In the accompanying consolidated financial statements and notes thereto, estimates are used for, but not limited to, stock-based compensation; revenue recognition, determination of variable consideration for accruals of chargebacks, administrative fees and rebates, government rebates, returns and other allowances; allowance for credit losses; inventory impairment; determination of right-of-use assets and lease liabilities; valuation of financial instruments, derivative warrant liabilities, intangible assets, and long-lived assets; purchase price allocations and the depreciable lives of long-lived assets; accruals for contingent liabilities; and determination of the income tax provision, deferred taxes and valuation allowance.

Prior Period Reclassification.

Certain prior year amounts in the Company’s consolidated financial statements and the notes thereto have been reclassified to conform to the current year presentation. These reclassifications did not impact operating results or cash flows for the fiscal years ended June 30, 2024, and 2023, or its financial position as of June 30, 2024, or June 30, 2023.

Previously Reported Prepaid Expenses Information

During the year ended June 30, 2024, the Company identified that certain of the Company’s prepaid expenses totaling $1.8 million that were previously reported as current assets as of June 30, 2023, should have been classified as non-current assets as of June 30, 2023. The Company assessed the materiality of this omission on the previously issued interim and annual consolidated financial statements in accordance with the United States Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No.99, “Materiality” and concluded that the omission was not material to any of the previously issued consolidated financial statements and began reporting the prepaid expenses as non-current within this Form 10-K.

Cash and Cash Equivalents

The Company’s primary objectives for investment of available cash are the preservation of capital and the maintenance of liquidity. The Company invests its available cash balances in bank deposits and money market funds. The cash balances in bank deposits are subject to the Federal Deposit Insurance Corporation (“FDIC”) insurance limits, and cash balances in the money market funds are not FDIC insured. The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.

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Accounts Receivable, Net

Accounts receivable represent amounts due from customers less allowances for credit losses, discounts and pricing chargebacks. An allowance for credit losses, when needed, is based on the best estimate of the amount of probable credit losses in existing accounts receivable, which is determined from the Company’s historical write-off experience and expected future default probabilities based on ongoing evaluations of Company’s customers’ financial condition; payment history; collections experience on other accounts; and economic factors or events expected to affect future collections. An allowance for credit losses, when needed, consists of an amount identified for specific customers and an amount based on overall estimated exposure. Accounts receivable are customer obligations due under normal trade terms. Recovery of bad debt amounts which were previously written off are recorded as a reduction of bad debt expense in the period the payment is collected. If the Company’s actual collection experience changes, revisions to the Company’s allowance for credit losses may be required. After attempts to collect a receivable have failed, the receivable is written off against the allowance for credit losses. The allowance for credit losses was zero for both years ended June 30, 2024, and 2023. The allowance for discounts was $0.6 million and $1.8 million as of June 30, 2024, and 2023, respectively. The allowance for chargebacks was $1.2 million at both June 30, 2024, and 2023.

The table below presents the opening and closing balances of accounts receivable, gross from customers.

Accounts Receivable, Gross

(in thousands)

Increase in accounts receivable, gross 7,708

Decrease in accounts receivable, gross (6,488 )

The table below details the change in allowance for discounts and allowance for chargebacks for the periods presented.

Allowance for Discounts Allowance for Chargebacks Total Allowance

(in thousands)

Inventories

Inventories consist of raw materials, work in process and finished goods and are recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. Prior to regulatory approval, before economic benefit is probable, pre-launch inventories are expensed as research and development.

The Company periodically reviews the composition of its inventories in order to identify obsolete, slow-moving or otherwise unsaleable items. In the event that such items are identified and there are no alternate uses for the inventory, the Company will record a charge to cost of sales to reduce the value of the inventory to net realizable value in the period the impairment is identified.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Furniture and equipment are depreciated on a straight-line basis over their estimated useful lives which are generally two to seven years. Leasehold improvements are amortized over the shorter of the estimated useful life or remaining lease term. The Company begins depreciating assets when they are placed into service. Maintenance and repairs are expensed as incurred.

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Leases

At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease. Lease classification, recognition and measurement are determined at the lease commencement date. Lease liabilities and right-of-use (“ROU”) assets are recorded based on the present value of lease payments over the expected lease term, including options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. In determining the present value of the lease payments, the Company uses the implicit interest rate when readily determinable and uses the Company’s incremental borrowing rate when the implicit rate is not readily determinable based upon the information available at the lease commencement date.

Fixed lease payments, or in substance fixed, are recognized over the expected term of the lease using the effective interest method. Variable lease payments are expensed as incurred. Fixed and variable lease expenses on operating leases are recognized within cost of sales and operating expenses in the Company’s consolidated statements of operations. ROU asset amortization and interest costs on financing leases are recorded within cost of sales and interest expense, respectively, in the Company’s consolidated statements of operations. The Company has elected to account for payments on short-term leases as lease expense on a straight-line basis over lease terms of 12 months or less.

Operating leases are included in other liabilities in the Company’s consolidated balance sheets. Financing leases are included in property and equipment, net, current portion of debt and debt, net of current portion in the Company’s consolidated balance sheets.

Fair Value of Financial Instruments

Acquisitions

In an acquisition of a business or a group of assets, the Company uses the acquisition method of accounting which identifies, recognizes, and measures the identifiable assets acquired, liabilities assumed and any non-controlling interest at their acquisition date fair values. Any excess of the purchase consideration over the fair values of the net identifiable assets acquired is recorded as goodwill. If the Company determines the assets acquired do not meet the definition of a business, the transaction is accounted for as an acquisition of assets, which records the assets acquired at the purchase price and does not result in goodwill.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC Topic 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. Liability and equity classified warrants are valued using a Black-Scholes option pricing model or Monte Carlo simulation model at issuance and for each reporting period when applicable.

Revenue Recognition

The Company generates revenue from product sales through its Rx Segment and its Consumer Health Segment. The Company evaluates its contracts with customers to determine revenue recognition using the following five-step model: (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) a performance obligation is satisfied. There is not a recognized financing component related to product sales.

Rx Segment

Net product sales for the Rx Segment (which includes the ADHD Portfolio and the Pediatric Portfolio) consist of sales of prescription pharmaceutical products, principally to a limited number of wholesale distributors and pharmacies in the United States. Rx Segment net revenue is recognized at the point in time that control of the product transfers to the customer in accordance with shipping terms (i.e., upon delivery), which is generally “free-on-board” destination when shipped domestically within the United States and “free-on-board” shipping point when shipped internationally consistent with the contractual terms. The Company expenses the incremental costs to obtain a contract as incurred, since they are satisfied within one year.

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Rx Segment net revenue is recognized net of consideration paid to the Company’s customers and other adjustments to the transaction price (known as “Gross to Net” adjustments). Significant judgement is required in estimating Gross to Net adjustments considering legal interpretations of applicable laws and regulations, historical experience, payer channel mix, current contract prices under applicable programs, unbilled claims, processing time lags and inventory levels in the distribution channel.

The Gross to Net adjustments include:

Savings offers, rebates and wholesaler chargebacks reflect the terms of underlying agreements, which may vary. Accordingly, actual amounts will depend on the mix of sales by product and contracting entity. Future returns may not follow historical trends. The Company’s periodic adjustments of its estimates are subject to time delays between the initial product sale and ultimate reporting and settlement of deductions. The Company continually monitors these provisions and do not believe variances between actual and estimated amounts have been material.

Consumer Health Segment

The Consumer Health Segment, which was divested of in the first quarter of fiscal 2025, had net revenue which was from sales of various consumer health products through e-commerce platforms and direct-to-consumer marketing channels. Revenue was generally recognized “free-on-board” shipping point, as those were the agreed-upon contractual terms. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer were excluded from net revenue. Shipping and handling costs associated with outbound freight after control over a product had transferred to a customer were accounted for as a fulfillment cost and were included in cost of sales. The Company expensed the incremental costs to obtain a contract as incurred, since they are satisfied within one year.

Concentration of Credit Risk.

Financial instruments that potentially subject the Company to credit risk concentrations consist of cash, cash equivalents and accounts receivable.

The Company maintains deposits in financial institutions in excess of federally insured limits. The Company periodically monitors the credit quality of the financial institutions with which it invests and believes that the Company is not exposed to significant credit risk due to the financial position of those institutions.

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The Company is also subject to credit risk from accounts receivable related to product sales. The Company’s customers, sometimes referred to as partners or customers, are primarily large wholesale distributors that resell the Company’s products to retailers. The loss of one or more of these large customers could have a material adverse effect on the Company’s business, operating results or financial condition. The Company does not charge interest or require collateral related to its accounts receivable. Credit terms are generally thirty to sixty days.

The following table presents customers that contributed more than 10% of gross revenue and accounts receivable:

Percentage of Gross Revenue Percentage of Accounts Receivable

Costs of Sales

Costs of sales consists primarily of manufactured product cost, products acquired from third-party manufacturers, freight, production, inventory write-downs, indirect manufacturing overhead costs and United States Food and Drug Administration (“FDA”) fees for commercialized products. Certain of the Company’s sales activities depend on licensing arrangements that may require periodic milestone payments or royalty payments, which are also included in costs of sales. In addition, distribution, shipping and handling costs invoiced by the Company’s third-party logistics companies are included in costs of sales.

Stock-Based Compensation Expense

The Company accounts for stock-based payment compensation expense using a fair value based model. Restricted stock and restricted stock unit grants are valued based on the estimated grant date fair value of the Company’s common stock and recognized ratably over the requisite service period. Stock option grants are valued using the Black-Scholes option pricing model and compensation costs are recognized ratably over the period of service using the graded method. The Black-Scholes option pricing model requires the Company to estimate the expected term of the award, the expected volatility, the risk-free interest rate, and the expected dividends. The expected term is determined using the “simplified method,” which is the midpoint between the vesting date and the end of the contractual term and is utilized by the Company as it does not have sufficient historical data to determine a more reliable expected term estimate. The risk-free interest rate is based on the United States Treasury yield in effect at the time of the grant for the expected term of the award. The Company does not anticipate paying any dividends in the near future. Forfeitures are recognized as they occur.

Employee Benefits Plan

The Company has a 401(k) plan (“Aytu 401(k) Plan”), which allows participants to contribute a portion of their salary, subject to eligibility requirements and annual Internal Revenue Service (“IRS”) limits. The Aytu 401(k) Plan matches 100% of the first3% contributed by employees and matches 50% of the next 4% and 5% contributed by employees. The Company’s match for the Aytu 401(k) Plan was $0.7 million for both of the years ended June 30, 2024, and 2023.

Research and Development

Research and development costs are expensed as incurred and include salaries and benefits; facilities costs; overhead costs; raw materials; laboratory and clinical supplies; clinical trial costs; contract services; milestone payments and fees paid to regulatory authorities for review and approval of the Company’s product candidates; and other related costs.

Intangible Assets

The Company records acquired intangible assets based on fair value on the date of acquisition. Finite-lived intangible assets are recorded at cost and amortized on a straight-line basis over the estimated lives of the assets. Indefinite-lived intangible assets are not subject to amortization.

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Impairment of Long-lived Assets

The Company assesses impairment of asset groups, including intangible assets, when events or changes in circumstances indicate that their carrying amount may not be recoverable. Long-lived assets consist of property and equipment, net, right of use assets and other intangible assets, net. Circumstances which could trigger a review include, but are not limited to: (i) changes in Company plans; (ii) competition; (iii) significant adverse changes in the business climate or legal or regulatory factors; or (iv) expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. If the estimated future undiscounted cash flows, excluding interest charges, from the use of an asset are less than its carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.

Contingent Consideration

The consideration for the Company's acquired businesses and licenses often includes future payments that are contingent upon the occurrence of a particular event or events. The Company records an obligation for such contingent payments at fair value on the acquisition date. Changes in the fair value of contingent consideration obligations are recognized in the consolidated statements of income, which resulted in a gain from contingent consideration of zero and $1.0 million for the years ended June 30, 2024, and 2023, respectively. The Company did not have any contingent consideration recorded on its consolidated balance sheets as of June 30, 2024, and 2023.

Advertising and Direct Marketing Costs

Advertising and direct marketing costs consist of the direct marketing activities related to the Consumer Health Segment. The Company expenses all advertising costs as incurred. The Company incurred $4.9 million and $17.2 million of advertising costs for the years ended June 30, 2024, and 2023, respectively.

Income Taxes

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and net operating loss and tax credit carryforwards. The amount of deferred taxes on these temporary differences is determined using the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on tax rates and laws in the respective tax jurisdiction enacted as of the balance sheet date. A valuation allowance is recorded to reduce the net deferred tax asset when it is more likely than not that some portion or all of its deferred tax asset will not be utilized.

The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained upon an examination. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense in the consolidated statements of operations.

Debt Discount and Issuance Costs

Debt issuance costs reflect fees paid to lenders and third parties directly related to issuing debt. Debt discount and issuance costs related to term loans are reported as direct deductions to the outstanding debt and amortized over the term of the debt using the effective interest method as an addition to interest expense. Debt issuance costs related to a revolving credit facility are classified as assets and subsequently amortized using the straight-line method over the term of the revolving credit facility as additional interest expense.

Segment Information

The Company’s operating segments engage in business activities from which it may earn revenues and incur expenses and for which discrete information is available and regularly reviewed by the Company’s chief operating decision maker (“CODM”), who is the Company’s Chief Executive Officer, to make decisions about resources to be allocated to the segment and to assess performance. Operating segments are aggregated for reporting purposes when the operating segments are identified as similar in accordance with the basic principles and aggregation criteria in the accounting standards. The Company’s reporting segments are based on product lines, which have different lines of management responsibility and marketing strategies. The Company has two reportable segments: the Rx Segment and the Consumer Health Segment.

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Paragraph IV Litigation Costs

Legal costs incurred by the Company in the enforcement of the Company’s intellectual property rights are charged to expense.

Business Combinations

The Company recognizes the identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The excess of purchase price over the aggregate fair values is recorded as goodwill. The Company calculates the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed to allocate the purchase price at the acquisition date.

Employee Retention Credit

On March 27, 2020, the United States government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to provide certain relief as a result of the COVID-19 pandemic. The CARES Act provides tax relief, along with other stimulus measures, including a provision for an Employee Retention Credit (“ERC”), which allows for employers to claim a refundable payroll tax credit against the employer share of Social Security tax equal to 70% of the qualified wages paid to employees after December 31, 2020, through September 30, 2021. The ERC was designed to encourage businesses to keep employees on the payroll during the COVID-19 pandemic.

As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, the Company will account for the ERC by analogy to International Accounting Standard (“IAS”) 20, Accounting for Government Grants and Disclosure of Government Assistance (“IAS 20”). In accordance with IAS 20, the Company recorded a $3.8 million ERC accrual in other non-current liabilities, which represents the proceeds the Company received from the ERC program during the first quarter of fiscal 2024. Further in accordance with IAS 20, when management determines it has reasonable assurance that the Company has substantially met all eligibility requirements of the ERC and following any adjustments from its regulatory audit or upon further clarifications from the Internal Revenue Code of 1986, as amended (the “IRC”), the ERC accrual shall be recognized as a benefit in other income in the consolidated statement of operations. The associated vendor fee of $0.4 million was expensed as incurred in the first quarter of fiscal 2024.

Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing the net income (loss) available to the common stockholders by the weighted average number of common shares outstanding during that period. Diluted net income (loss) per share reflects the potential of securities that could share in the net income (loss) of the Company. For the years ended June 30, 2024, and 2023, the Company incurred a net loss and did not include common equivalent shares in the computation of diluted net loss per share because the effect would have been anti-dilutive.

The following table sets forth securities excluded from the calculation of diluted earnings per share.

June 30,

Warrants to purchase common stock - equity classified (Note 16) 18,114 39,072

Employee unvested restricted stock units (Note 15) 1,775 4,963

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Recently Adopted Accounting Pronouncements

Financial Instruments - Credit Losses

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No.2016-13,Financial Instruments—Credit Losses (“ASU 2016-13”), which requires the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of ASU 2016-13 is to provide additional information about the expected credit losses on financial instruments and other commitments to extend credit. The standard was effective for interim and annual reporting periods beginning after December 15, 2019. However, in October 2019, the FASB approved deferral of the adoption date for smaller reporting companies for fiscal periods beginning after December 15, 2022. The effective dates for the amendments in ASU 2022-02 align with those of ASU 2016-13. The Company adopted ASU 2016-13 and ASU 2019-05 on July 1, 2023. The Company evaluated the impact of adoption of ASUs 2016-13,2019-05, and 2022-02 and concluded that the application of the new standards did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Debt - Debt with Conversion and Other Options

In August 2020, the FASB issued ASU No.2020-06,Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by removing major separation models currently required. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The amendments in this update are effective for public entities that are smaller reporting companies, as defined by the SEC, for the fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted through a modified retrospective or full retrospective method. The Company adopted the guidance on July 1, 2024, and the adoption of the standard did not have a material impact on the Company’s consolidated financial statements.

Segment Reporting

In November 2023, the FASB issued ASU No.2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 was issued to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance should be applied retrospectively unless it is impracticable to do so. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024. Early adoption is permitted, including in an interim period. The Company is currently evaluating the provisions of this guidance and assessing the potential impact on the Company’s consolidated financial statements and disclosures.

Other than the application of IAS 20 for the ERC, there have been no significant changes to the Company’s significant accounting policies and there is no other accounting guidance has been issued and not yet adopted that is applicable to the Company and that the Company expects would have a material effect on the Company’s consolidated financial statements and related disclosures as of June 30, 2024, and through the filing of this Form 10-K.

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Note 3 - Revenue

The Company disaggregates its revenue into two segments, the Rx Segment and the Consumer Health Segment. The Rx Segment includes the ADHD Portfolio, comprised of Adzenys and Cotempla; and the Pediatric Portfolio, comprised of Karbinal, Poly-Vi-Flor and Tri-Vi-Flor. The Company completed its wind down of the Consumer Health Segment and entered into a definitive agreement to effect the Consumer Health Divestiture in the first quarter of fiscal 2025. The Consumer Health Segment was comprised of over ten consumer health products.

Revenues by Segment

Net revenue disaggregated by segment for the years ended June 30, 2024, and 2023, were as follows:

Year Ended

(in thousands)

Revenues by Product Portfolio

Net revenue disaggregated by significant product portfolios in the Rx Segment for the years ended June 30, 2024, and 2023, were as follows:

Year Ended

(in thousands)

Other includes discontinued and deprioritized products in the Rx Segment. The Consumer Health Segment was comprised of one product portfolio.

Revenues by Geographic Location

Net revenue disaggregated by geographic location as determined by the billing address of the Company’s customers for the years ended June 30, 2024, and 2023, were as follows:

Year Ended

(in thousands)

International net revenue 91 481

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Note 4 - Inventories

Inventories consist of the following:

(in thousands)

The Company incurred inventory write-downs of $2.3 million for the year ended June 30, 2024, primarily a result of unsalable and slow-moving products and a $0.7 million write-down as part of the wind down of the Consumer Health Segment. The Company incurred inventory write-downs of $2.4 million for the year ended June 30, 2023, primarily as a result of unsalable and slow-moving products.

Note 5 - Property and Equipment

Property and equipment, net consist of the following:

(in thousands)

Office equipment, furniture and other 945 1,125

Leasehold improvements 35 999

Assets under construction — 107

Property and equipment, gross 2,818 5,496

Less accumulated depreciation and amortization (2,125 ) (3,681 )

Property and equipment, net $ 693 $ 1,815

Depreciation expense was $0.9 million and $1.3 million during the years ended June 30, 2024, and 2023, respectively. During the year ended June 30, 2024, the Company did not record a material gain or loss on disposal of equipment and during the year ended June 30, 2023, the Company recognized a gain of $0.1 million on the disposal of equipment.

Note 6 - Leases

The Company’s operating leases are for its offices, manufacturing facilities and equipment, and its finance leases were for equipment. These leases have original lease periods expiring between 2022 and 2030. Most leases include option provisions under which the parties may extend the lease term. Certain non-real estate leases also include options to purchase the leased property. The Company’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. The Company had no remaining finance leases recorded as of June 30, 2024.

In connection with the Neos Acquisition, Aytu assumed an operating lease ROU asset and lease liability of $3.5 million, which represented the present value of the remaining lease payments as of the acquisition date, for the office space and manufacturing facilities at Grand Prairie, Texas. As the lease agreement does not provide an implicit rate, a borrowing rate of 6.7% was used to determine the present value of future lease payments.

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During the fourth quarter of fiscal 2024, as part of the previously announced wind down of the Consumer Health Segment and the closure of the Grand Prairie, Texas manufacturing site, the Company ceased using the Oceanside, California warehouse and the Grand Prairie, Texas manufacturing facility. As a result, the Company wrote off the remaining related operating lease ROU assets. The lease for the Oceanside, California warehouse and the Grand Prairie, Texas manufacturing site are set to expire on December 31, 2026, and on December 31, 2024, respectively.

In June 2024, the Company entered into a forward-starting operating lease agreement to lease office space in Berwyn, Pennsylvania from the owner of the office space that the Company is currently renting under a sublease arrangement. The Company has determined that it is an operating lease, and that lease commencement occurred in July 2024. The initial lease termination date is July 31, 2030, and under the lease agreement the Company has one five-year renewal option to extend the lease through July 2035. Undiscounted minimum monthly rent payments average approximately $13,000 over the initial term of the lease. The Company has elected to utilize the practical expedient to not separate lease and non-lease components upon recognition and variable lease payments will be expensed as incurred. The Company will record an operating lease ROU asset of $0.5 million and a lease liability of $0.5 million at lease commencement in July 2024. The ROU asset and lease liability will be recorded at present value using an incremental borrowing rate of 12.3%.

In May 2023, the Company entered into a lease agreement to relocate its principal office. The space was made available to the Company in September 2023 (lease commencement) with an initial term of five and a half years. The Company recorded an operating lease ROU asset of $0.8 million and a lease liability of $0.8 million at lease commencement. The ROU asset and lease liability were recorded at present value using an incremental borrowing rate of 10.3%. The Company utilized the practical expedient to not separate lease and non-lease components upon recognition. See Note 18 – Commitments and Contingencies for further detail.

The components of lease expenses are as follows:

Year Ended

June 30,

2024 2023 Statement of Operations Classification

(in thousands)

Lease cost:

Operating lease cost $ 2,247 $ 1,402 Operating expenses

Short-term lease cost 94 97 Operating expenses

Finance lease cost:

Amortization of leased assets 53 66 Cost of sales

Interest on lease liabilities 3 9 Interest expense

Supplemental balance sheet information related to leases is as follows:

(in thousands)

Assets:

Operating lease assets $ 829 $ 2,054 Operating lease right-of-use assets

Finance lease assets — 159 Property and equipment, net

Liabilities:

Current:

Operating leases $ 712 $ 1,258 Other current liabilities

Finance leases — 85 Current portion of debt

Non-current:

Operating leases 577 832 Other liabilities

Total lease liabilities $ 1,289 $ 2,175

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The remaining weighted-average lease term and discount rate used are as follows:

Weighted-average remaining lease term (years):

Operating lease assets 2.7 1.7

Finance lease assets — 0.9

Weighted-average discount rate:

Operating lease assets 10.0 % 7.8 %

Finance lease assets — % 6.5 %

Supplemental cash flow information related to leases is as follows:

Year Ended

(in thousands)

Cash flow classification of lease payments:

Operating cash flows from operating leases $ 1,812 $ 1,436

Operating cash flows from finance leases $ 3 $ 9

Financing cash flows from finance leases $ 85 $ 96

As of June 30, 2024, the Company did not have any remaining finance leases. As of June 30, 2024, the Company’s future minimum operating lease payments, including the new forward-starting operating lease agreement to lease office space in Berwyn, Pennsylvania were as follows:

Operating

(in thousands)

Total lease payments 2,740

Less: imputed interest (555 )

Lease liabilities $ 2,185

Note 7 - Intangible Assets

A summary of the Company’s intangible assets as of June 30, 2024, and June 30, 2023, is as follows:

(in thousands) (in years)

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(in thousands) (in years)

Gross carrying amounts are net of any impairment charges from prior periods. An intangible asset with zero net carrying amount at the end of a reporting period is not presented in the table of a future reporting period. Certain of the Company’s amortizable intangible assets include renewal options, extending the expected life of the asset. The renewal periods range between approximately 1 to 20 years depending on the license, patent or other agreement. Renewals are accounted for when they are reasonably assured. Intangible assets are amortized using the straight-line method over the estimated useful lives. Amortization expense of intangible assets was $6.5 million and $6.1 million for the years ended June 30, 2024, and 2023, respectively.

The following table summarizes the estimated future amortization expense of intangible assets to be recognized over the next five years and periods thereafter:

(in thousands)

Total future amortization expense $ 52,453

Acquired Product Technology Rights

The acquired product technology rights are related to the rights to production, supply and distribution agreements of various products pursuant to the acquisition of the Pediatric Portfolio in November 2019 and the Neos Acquisition in March 2021.

Karbinal

The Company acquired and assumed all rights and obligations pursuant to the supply and distribution agreement, as amended, with Tris Pharma, Inc. (“Tris”) for the exclusive rights to commercialize Karbinal in the United States (the “Tris Karbinal Agreement”). The Tris Karbinal Agreement’s initial term terminates in August of 2033, with an optional initial 20-year extension.

Poly-Vi-Florand Tri-Vi-Flor

The Company acquired and assumed all rights and obligations pursuant to a supply and license agreement and various assignment and release agreements, including a previously agreed to settlement and license agreements (the “Poly-Tri Agreements”) for the exclusive rights to commercialize Poly-Vi-Flor and Tri-Vi-Flor in the United States.

ADHD Portfolio

As part of the Neos Acquisition, the Company acquired developed product technology for the production and sale of Adzenys and Cotempla. The formulations for the ADHD products are protected by patented technology. The estimated economic life of these proprietary technologies is 16 years.

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Acquired Technology Right

TRRP Proprietary Technology

As part of the Neos Acquisition, the Company acquired time release resin particle (“TRRP”) proprietary technology, which is a proprietary drug delivery technology protected by the Company as a trade secret that allows the Company to modify the drug release characteristics of each of its respective products. The TRRP technology underlines each of the ADHD Portfolio core products and can potentially be used in future product development initiatives as well.

Acquired Product Distribution Rights

In connection with the acquisition of Innovus Pharmaceuticals, Inc. (“Innovus”) in February 2020 (the “Innovus Acquisition”), the Company obtained 35 products with a combination of over 300 registered trademarks and/or patent rights and customer lists. The customer lists are fully amortized. During the fiscal year ended June 30, 2023, this intangible asset was impaired by $3.0 million due to the discontinuance of products in the Consumer Health Segment. As of June 30, 2024, this intangible asset was fully amortized and removed from gross carrying value.

Acquired In-Process R&D

IPR&D –NT0502

As part of the Neos Acquisition, the Company acquired in-process research and development associated with NT0502, a new chemical entity that was being developed for the treatment of sialorrhea, which is excessive salivation or drooling. During the year ended June 30, 2023, the Company terminated its development program of NT0502. As a result, the Company fully impaired the IPR&D of NT0502, recording impairment expense of $2.6 million to its Rx Segment during the second quarter of fiscal 2023.

Note 8 - Accrued liabilities

Accrued liabilities consist of the following:

(in thousands)

Accrued customer and product related fees 5,395 6,579

Accrued savings offers represent programs for the Company’s patients covered under commercial payor plans in which the cost of a prescription to such patients is discounted. Accrued program liabilities include government and commercial rebates. Accrued customer and product related fees include accrued expenses and deductions for rebates, wholesaler chargebacks and fees, and other product-related fees and deductions such as royalties for Pediatric Portfolio products, accrued distributor fees, and Medicaid liabilities. Accrued employee compensation includes sales commissions, paid time off earned, accrued payroll and accrued bonus. The return reserve represents the Company’s accrual for estimated product returns. Other accrued liabilities consist of various other accruals, none of which individually or in the aggregate represent greater than five percent of total liabilities.

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The following table details the change in return reserve for the periods presented:

Return Reserve

(in thousands)

Reduction of net revenue 8,353

Reduction of net revenue 6,128

Note 9 - Other Liabilities

Other liabilities consist of the following:

(in thousands)

Employee retention credit 3,759 —

Less: current portion of other liabilities (8,962 ) (7,090 )

Total other liabilities, non-current $ 4,529 $ 6,975

Fixed payment arrangements

Fixed payment arrangements represent obligations to an investor assumed as part of the acquisition of products from Cerecor, Inc. in 2019, including fixed and variable payments.

In May 2022, the Company entered into an agreement with Tris to terminate the license, development, manufacturing and supply agreement dated November 2, 2018, related to Tuzistra XR (the “Tuzistra License Agreement”). Pursuant to such termination, as of June 30, 2024, the Company has accrued a settlement liability of $6.2 million in other current liabilities on the consolidated balance sheet payable to Tris, with a provision that allows the Company to pay interest on any principal amounts due but remaining unpaid past July 2024.

The Tris Karbinal Agreement grants the Company exclusive right to distribute and sell the product in the United States. The initial term of the agreement was 20 years. The Company pays Tris a royalty equal to 23.5% of net revenue from the product. The Tris Karbinal Agreement also contains minimum unit sales commitments, which is based on a commercial year that spans from August 1 through July 31, of 70,000 units annually through 2025. The Company is required to pay Tris a royalty make-whole payment of $30 for each unit under the 70,000-unit annual minimum sales commitment through 2025. The Tris Karbinal Agreement make-whole payment is capped at $2.1 million each year. The annual payment is due in August of each year. The Tris Karbinal Agreement also has multiple commercial milestone obligations that aggregate up to $3.0 million based on cumulative net revenue from the product, the first of which is triggered at $40.0 million. As of June 30, 2024, the fixed payment arrangement balance was $1.9 million in other current liabilities, and $0.2 million in other non-current liabilities on the consolidated balance sheet.

Employee Retention Credit

The $3.8 million ERC accrual in other non-current liabilities as of June 30, 2024, represents the proceeds the Company received from the ERC program during the first quarter of fiscal 2024. Please see Note 2 - Significant of Significant Accounting Policies for further detail.

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Operating Lease Liabilities

The Company has entered into various operating lease agreements for certain of its offices, manufacturing facilities and equipment. Please refer to Note 6 - Leases for further detail.

Other

Other consists of taxes payable, deferred cost related to the Company’s technology transfer, and various other accruals, none of which individually or in the aggregate represent greater than five percent of total liabilities.

Note 10 - Revolving Credit Facility

On June 12, 2024, the Company and certain of its subsidiaries entered into consent, joinder and amendment No.5 (the “Eclipse Amendment No.5”) to the loan and security agreement dated October 2, 2019, as amended by amendment No.1, dated March 19, 2021, amendment No.2, dated January 26, 2022, amendment No.3, dated June 1, 2022, amendment No.4 dated March 24, 2023, and the Eclipse Amendment No.5 (together the “Eclipse Agreement”) with Eclipse Business Capital LLC (“Eclipse”), as agent, and the lenders party thereto (agent and such lenders, collectively, the “Eclipse Lender”). Under the Eclipse Amendment No.5, which provided for among other things, two loan agreements, a term loan (the “Eclipse Term Loan”) and a revolving credit facility (the “Eclipse Revolving Loan”). The Eclipse Term Loan is described further in Note 11 - Long-Term Debt. The Eclipse Revolving Loan provides for a maximum amount available under the revolving credit facility provided under the Eclipse Agreement of $14.5 million at an interest rate of the secured overnight financing rate as administered by the SOFR Administrator (“SOFR”) plus 4.5%. In addition, the Company is required to pay an unused line fee of 0.5% of the average unused portion of the maximum Eclipse Revolving Loan amount during the immediately preceding month. The ability to make borrowings and obtain advances of revolving loans under the Eclipse Agreement remains subject to a borrowing base and reserve, and availability blockage requirements. The Eclipse Revolving Loan maturity date, as amended, is June 12, 2028, and the effective interest rate was 9.9% as of June 30, 2024.

In the event that, for any reason, all or any portion of the Eclipse Agreement is terminated prior to the scheduled maturity date, in addition to the payment of all outstanding principal and unpaid accrued interest, the Company is required to pay a fee equal to (i) 2.0% of the Eclipse Revolving Loan commitment if such event occurs on or before June 12, 2025, (ii) 1.0% of the Eclipse Revolving Loan commitment if such event occurs after June 12, 2025, but on or before June 12, 2026, and (iii) 0.5% of the Eclipse Revolving Loan commitment if such event occurs after June 12, 2026, but on or before June 12, 2028. The Company may also be required to pay an early termination fee related to the Eclipse Term Loan as further described in Note 11 - Long-Term Debt. The Company may permanently terminate the Eclipse Agreement upon written notice to Eclipse.

The Eclipse Agreement contains customary affirmative covenants, negative covenants and events of default, as defined in the agreement, including covenants and restrictions that, among other things, require the Company to satisfy certain capital expenditure limitations and other financial covenants, and restrict the Company’s ability to incur liens, incur additional indebtedness, make certain dividends and distributions with respect to equity securities, engage in mergers and acquisitions or make asset sales without the prior written consent of Eclipse. A failure to comply with these covenants could permit Eclipse to declare the Company’s obligations under the Eclipse Agreement, together with accrued interest and fees, to be immediately due and payable, plus any applicable additional amounts relating to a prepayment or termination, as described above. As of June 30, 2024, the Company was in compliance with the covenants under the Eclipse Agreement. The Company’s obligations under the Eclipse Agreement are secured by substantially all of the Company’s assets, as defined further in the Eclipse Agreement.

The Company allocated debt issuance costs of $0.1 million related to the Eclipse Revolving Loan, bringing to the total debt issuance costs related to the Eclipse Revolving Loan to $0.2 million, which will be amortized straight-line over the term of the loan. Total interest expense on the Eclipse Revolving Loan, including amortization of deferred financing costs, was $0.1 million and $0.7 million for the years ended June 30, 2024, and 2023. As of June 30, 2024, and 2023, the outstanding amounts drawn on the Eclipse Revolving Loan were $2.4 million and $1.6 million, respectively. The unused revolving credit facility amount as of June 30, 2024, was $5.6 million.

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Note 11 - Long-Term Debt

Avenue Capital Loan

On January 26, 2022 (“Closing Date”), the Company entered into a loan and security agreement (the “Avenue Capital Agreement”) with Avenue Venture Opportunities Fund II, L.P. and Avenue Venture Opportunities Fund II, L.P. as lenders (the “Avenue Capital Lenders”), and Avenue Capital Management II, L.P. as administrative agent (the “Avenue Capital Agent”), collectively (“Avenue Capital”), pursuant to which the Avenue Capital Lenders provided the Company and certain of its subsidiaries with a secured $15.0 million loan. The interest rate on the loan was the greater of the prime rate or 3.25%, plus 7.4%, payable monthly in arrears. The maturity date of the loan was January 26, 2025. The proceeds from the Avenue Capital Agreement were used towards the repayment of the term loans.

Pursuant to the Avenue Capital Agreement, the Company was required to make interest only payments for the first18 months following the Closing Date (the “Interest-only Period”). The Interest-only Period could be extended automatically without any action by any party for six months provided as of the last day of the Interest-only Period then in effect, the Company received, prior to June 15, 2023, a specified amount of net proceeds from the sale and issuance of its equity securities (“Interest-only Milestone 1”). The Interest-only Period was able to be further extended automatically without any action by any party for an additional six months provided, the Company had achieved, prior to December 31, 2023, (i) Interest-only Milestone 1 and (ii) a specified amount of trailing 12 months revenue as of the date of determination.

On January 26, 2022 (“Issuance Date”), as consideration for entering into the Avenue Capital Agreement, the Company issued warrants to the Avenue Capital Lenders to purchase shares of common stock at an exercise price equal to $24.20 per share (the “Avenue Capital Warrants”). The Avenue Capital Warrants provided that in the event the Company were to engage in an equity offering at a price lower than $24.20 prior to June 30, 2022, the exercise price would be adjusted to the effective price of such equity offering and the number of shares of common stock to be issued under the Avenue Capital Warrants would be adjusted as set forth in the agreement. The Avenue Capital Warrants were immediately exercisable and expire on January 31, 2027. At inception, the Company accounted for the Avenue Capital Warrants as a derivative warrant liability as the number of warrants was not fixed at the Issuance Date. The fair value of the Avenue Capital Warrants at issuance was approximately $0.6 million.

On March 7, 2022, the Company closed on an equity offering of shares of common stock and warrants, as described in Note 15 - Stockholders Equity, at an offering price of $25.00 per share. As this offering precluded the Company from pursuing any equity financing prior to July 7, 2022, and the effective price of the March 7, 2022, offering was more than the exercise price of the Avenue Capital Warrants, the shares of common stock issuable upon exercise of the Avenue Capital Warrants were set at an exercise price of $24.20.

On October 25, 2022, the Company entered into an agreement with Avenue Venture Opportunities Fund, L.P (“Avenue”) to extend the interest-only period of its existing senior secure loan facility held with Avenue. The amendment to the original loan agreement, which was executed in January 2022, extended the interest-only period to January 2024. In exchange for this extension of the interest-only period, the Company and Avenue agreed to reset the exercise price of the warrants issued in conjunction with the original loan agreement to $8.60, corresponding to the warrant exercise price associated with the Company’s August 2022 equity financing.

On June 13, 2023, in conjunction with the Securities Purchase Agreement described in Note 16 - Warrants, the interest-only period of the Avenue Capital Agreement was extended further upon the achievement of both the revenue-based milestone and equity raise-based milestone stipulated in the Avenue Capital Agreement. As a result, the interest-only period was extended to January 26, 2025.

In addition to the debt discount discussed above, the Company also incurred $0.4 million loan origination, legal and other fees. The debt discount and issuance costs were being amortized over the term of the loan, using the effective interest method resulting in an effective rate of 16.6%. Total interest expense on the Avenue Capital loan including debt discount amortization, were $3.4 million and $2.7 million for the years ended June 30, 2024, and 2023.

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On June 12, 2024, the Company used proceeds from the Eclipse Term Loan and a portion of the proceeds from the exercise of warrants to repay the Avenue Capital loan in full. Upon early repayment of the Avenue Capital loan, the Company was required to pay Avenue Capital a fee equal to 1.0% of the loan or $0.2 million. In addition, upon the payment in full of the obligations, the Company was required to pay Avenue Capital a fee in the amount of $0.6 million (“Final Payment”). At inception, the Company accounted for the Final Payment as additional obligations on the debt, with the corresponding charge being recorded as debt discount. At retirement, the early termination fee, the Final Payment fee, and the write-off of all remaining related debt discount and deferred financing costs were included in the calculation of loss on extinguishment of debt. The Company recorded a loss on extinguishment of debt of $0.6 million related to the retirement of the Avenue Capital loan in the fourth quarter of fiscal 2024.

Eclipse Term Loan

On June 12, 2024, the Company and certain of its subsidiaries entered into Eclipse Amendment No.5, which provided for among other things, the Eclipse Term Loan and the Eclipse Revolving Loan described further in Note 10 - Revolving Credit Facility. The Eclipse Term Loan consists of a principal amount of $13.0 million, at an interest rate of SOFR plus 7.0%, with a four-year term maturing on June 12, 2028, and a straight-line loan amortization period of seven years, which would provide for a loan balance at the end of the four-year term of $5.6 million to be repaid on June 12, 2028, the maturity date. The Company used the proceeds of the Eclipse Term Loan and a portion of the proceeds from warrant exercises described below to repay in full the Avenue Capital loan. The effective interest rate on the Eclipse Term Loan was 12.4% as of June 30, 2024.

In the event that, for any reason, all or any portion of the Eclipse Agreement is terminated prior to the scheduled maturity date, in addition to the payment of all outstanding principal and unpaid accrued interest, the Company is required to pay a fee equal to (i) 3.0% of the Eclipse Term Loan if such event occurs on or before June 12, 2025, (ii) 2.0% of the Eclipse Term Loan if such event occurs after June 12, 2025, but on or before June 12, 2026, (iii) 1.0% of the Eclipse Term Loan if such event occurs after June 12, 2026, but on or before June 12, 2027, and (iv) 0.5% of the Eclipse Term Loan if such event occurs after June 12, 2026, but on or before June 12, 2028. The Company may also be required to pay an early termination fee related to the Eclipse Revolving Loan as further described in Note 10 - Revolving Credit Facility. The Company may permanently terminate the Eclipse Agreement upon written notice to Eclipse. The Company’s obligations under the Eclipse Agreement are secured by substantially all of the Company’s assets, as further defined in the Eclipse Agreement.

The Eclipse Agreement contains customary affirmative covenants, negative covenants and events of default, as defined in the agreement, including covenants and restrictions that, among other things, require the Company to satisfy certain capital expenditure limitations and other financial covenants, and restricts the Company’s ability to incur liens, incur additional indebtedness, make certain dividends and distributions with respect to equity securities, engage in mergers and acquisitions or make certain asset sales without the prior written consent of the Eclipse Lender. A failure to comply with these covenants could permit the Eclipse Lender to declare the Company’s obligations under the agreement, together with accrued interest and fees, to be immediately due and payable, plus any applicable additional amounts relating to a prepayment or termination, as described above. As of June 30, 2024, the Company was in compliance with the covenants under the Eclipse Agreement.

The Company recorded total debt discount and allocated debt issuance costs of $0.3 million related to the Eclipse Term Loan, which will be amortized over the term of the loan. The Company incurred interest expense on the Eclipse Term Loan, including debt discount and issuance costs amortization, of $0.1 million for the year ended June 30, 2024.

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Long-term debt consists of the following:

(in thousands)

Unamortized debt discount and issuance costs (266 ) (925 )

Final payment fee — 638

Financing leases — 85

Less: current portion of debt (1,857 ) (85 )

Total debt, net of current portion $ 10,877 $ 14,713

Future principal payments of long-term debt are as follows:

AYTU US Equity

AYTU · 10-K · period ended 2024-06-30

ITEM7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

ITEM8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

AYTU US Equity☆

AYTU · 10-K · period ended 2024-06-30

ITEM7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

ITEM8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

AYTU US Equity